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3 miners fighting back against low gold prices

It may be a relentless battle, but Australia’s gold producers have stepped up their fight against the falling gold price that threatens their viability. According to Bloomberg, mining consultant firm Surbiton Associates reports that Australia’s gold miners increased quarterly production by 2.5 metric tonnes in the September quarter to 69.5 tonnes. That’s a 4% increase over the June period, but a 12% jump on the September 2012 quarter.

Australia is the world’s second largest gold producer and the higher volumes are a result of miners targeting higher grade ore deposits which can both lower cash production costs and increase volumes.

Newcrest Mining (ASX: NCM) has pushed ahead with higher production. For the September quarter Newcrest produced 27% more gold than in the September 2012 quarter. The company is also fighting hard to continue to get costs down and announced last month that it expects to cut an unspecified number of jobs at its Telfer mine in Western Australia.

Silver Lake Resources (ASX: SLR) has also ramped up production. Gold produced for the September quarter was up 8% over the June quarter to 59,902 ounces, which helped the company to surge to its 500,000 ounce milestone in November. Silver Lake also made big leaps lowering all in sustaining costs from $1,347 to $1,098.

The biggest standout though was Northern Star Resources (ASX: NST). Northern Star recovered 26,009 ounces of gold in the quarter, slightly up on the June quarter, but at a significant 7% increase in grade.

Higher grade ore is a key to reducing costs and Northern Star saw a 10% reduction in its ‘all-in sustaining’ costs to $996 per ounce.

Grades of gold vary at each mine. Higher grade ore, measured as gpt (grams per tonne), allows less ore to be mined and processed to produce the same volume of gold.

This then lowers the costs per ounce of gold recovered. Northern Star Resources had average head-grade of 7.7gpt in the September quarter, while Silver Lake had a ‘blended grade’ of 2.4gpt. Newcrest Mining had a total head-grade of just 1.4gpt.

Foolish takeaway

The high grade ore being targeted by Northern Star Resources makes the company a standout, contributing to higher production and helping to keep the company one of the low lowest cost producers key factors required to secure cashflows.

As margins for all gold producers continue to get squeezed, Northern Star Resources looks to stand a higher chance of survival.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned.

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